Less than a decade after the housing bubble burst, home prices in the UK are hovering near new highs. Yet the
Socionomics Institute’s Alan Hall sees a darker future ahead. He warns that once again, the housing market is increasingly top heavy and shows signs that it is getting overheated.
Alan shared some more insights in a recent conversation with Alexandra Lienhard. You can listen to the three-minute interview or read a transcript below.
Alexandra Lienhard: Hi Alan. The October issue of The Socionomist features an update to your 2008 European real estate study. Can you briefly walk us through the story?
Alan Hall: Sure, Alexandra. When we published the June 2008 study, UK real estate was already down 10% from its peak. We thought that was just the beginning, and we warned, “The Bubble Has Burst: If you are one of the hundreds of thousands of Europeans who own speculative real estate, you tread the crumbling edge of a huge cliff.” Ten months later, the Halifax Index was down 23%, and it stayed below its August 2007 peak for almost eight years, until June 2015.
Alexandra: So UK real estate is back to new highs — that’s good news.
Alan: It’s great news for people that held on. But again, we see warning signs. The housing market’s structure is fractured and divergent. There are signs of mania in luxury real estate, but there is weaker and waning activity in broader markets. And maybe most ominous for the UK, there is increased government support for home ownership. The government recently said it wants a million homes built in England by 2020. Government also encouraged the US housing bubble. That’s because governments are the ultimate herd, so they are usually the last ones to the party.
Alexandra: So what else is new in the update?
Alan: We look at real estate investment trusts in the UK; sales activity in the UK and US; useful leading and lagging indicators for real estate; a century of data on the number of realtors in the US; and we take a quick look at Japan, which led the world in the real estate boom and bust. Today, real estate activity in Japan increasingly means that people demolish their 20-year old houses or suffer a six-fold rise in taxes. Bottom line, when people think of houses as shelter, prices are stable. When they think of houses as financial assets, prices soar and crash. Social mood regulates peoples’ perceptions, thinking and behavior toward housing and many other things. Understanding this psychology can help you decide whether to buy, sell, rent or stay put.
Alexandra: Thanks, Alan.